Random Roger wrote about the Vietnam opportunity fund last week. Vietnam was in the news recently because of the failed trade bill on the eve of the APEC summit. In spite of that, Vietnam is due to become the newest member of the WTO next year while it’s doing to China what China has done to others in manufacturing. Roger’s article was about how much emerging markets in general and the Vietnam fund in particular has appreciated in the last couple of months, but I mentioned it as a long segue to the topic at hand which has to do with pink sheets.

It turns out the Vietnam Opportunity fund (VOF.L) trades in London which makes it difficult to buy from an online broker with the exception of IB. Fortunately, it’s accessible in the over-the-counter market known as the pink sheets. It trades under the symbol VTOPF at a decent volume of 300-400k shares/day. Most online brokerages (TD Ameritrade and Scottrade for sure) treat pink sheets exactly the same as other stocks/ETFs.

Pink sheets are formally defined as

A daily publication compiled by the National Quotation Bureau with bid and ask prices of over-the-counter stocks, including the market makers who trade them. Unlike companies on a stock exchange, companies quoted on the pink sheets system do not need to meet minimum requirements or file with the SEC. Pink sheets also refers to OTC trading.

The name came from the pink paper they are printed on. They have a bad rap as a lightly regulated market where penny stock pump-and-dumpers cruise for their prey. That reputation may be deserved; however, some well established foreign companies can also be found there. They tend to be smaller than household names like Sony and Nokia that have ADRs, but are solid nonetheless. In addition, a large number of Canadian junior mining companies can also be bought via pink sheets. While riskier, they aren’t exactly fly-by-night operations either.

Below are some examples that I have looked at one time or another. This is not a recommendation for purchasing them.

Established foreign companies
Sherritt S.TO/SHERF.PK (Large Canadian company in coal, oil and base metals)
Canadian oil sands trust COS-UN.TO/COSWF.PK
Western oil sands WTO.TO/WOTIF.PK
Vestas wind systems VWS.L/VYSPF.PK (Dutch wind energy company, trades on just about every European stock exchange)

More speculative plays
International Uranium IUC.TO/IUCPF.PK (uranium mining and processing)
Denison Mines DEN.TO/DNMIF.PK (uranium mining)
Dragon Oil DGO.L/DRAGF.PK (Caspian oil)

Symbol look up
Normally what happens is that you have a foreign company that you are interested in, but it’s only listed on a foreign stock exchange. You can use the Yahoo finance symbol look-up to see if it trades as pink sheets. Note you have to specify US&Canada or World Markets in the pull-down menu. After locating the symbol, you can check with your broker to see if you can purchase it from them. Yahoo uses the “.pk” extension, but most other quoting services do not.

Intraday quotes/pricing
The pink sheets are quoted only at the daily closing price. For intraday quotes you have to use the symbol on the native exchanges. Note the quote will be in the local currency while the pink sheets trade in US dollars, so you will have to do a conversion when placing an order.

Caveat emptor
- Limit orders are absolutely necessary as the volumes are usually low.

Places to do research
Canadian Stocks: Stock House
London Stock Exchange

As always, you need to thoroughly research what you’re getting into. But for those daring, a dash of pink may do wonders for their returns.

Here are all the great money/finance carnivals featuring 1stM@33 submissions. Please visit them for more good readings.

1. Carnival of Frugality #53
2. Festival of Stocks #15
3. Carnival of Personal Finance #79
4. Carnival of Investing #53

Yeah! Shame on me! Although I submitted to various carnivals, I have been simply too busy AND lazy to write up this regular post week after week. Initially (actually just 6 months ago), I didn’t bother to write this, since I derived most of my site traffics from carnival participation. But I guess there is probably some amount of traffics that I can share back with the carnival hosts now. Hopefully by doing this, I can add a little to the vibrancy of the online money/finance blogging.

Anyway, I will try to do this in the future week after week. And if I don’t forget to do that, PLEASE ping & pinch me. I truly owe all of the weekly great hospitable carnival hosts this post.

I’m sure all of you who invested in precious metals noticed that last Friday, both gold & silver had a BIG drop. Actually, throughout the last two weeks, I have been worried about a successful attack on the gold price. It was the first time that I saw “attack”s pretty much everyday throughout a two week period. Obviously, gold was trying to make thru $650 before that time.

Most people don’t believe in the gold price manipulation theory. But I have become a converted believer after watching 24-hour Kitco’s gold price chart almost every trading day throughout the last 3 or 4 years since I first started investing in gold. Actually, I don’t check my own stocks that often. Usually the first (if not the only) thing that I check is the Kitco’s gold/silver charts, and then maybe my company stock price. And throughout these 3 or 4 years of watching the international trading of gold, I have noticed something. And it’s what all those gold bugs have been saying, and there is even an university professor who did a statistical study on this (sorry, can’t find the link, I read it maybe 1 or 2 years ago): statistically, gold price falls hard MUCH more often in the US market than ANY other international markets. I don’t have any numbers/link to back this up, except by telling you that it’s really true after watching gold trading throughout these years.

Kitco’s gold chart makes it really easy in observing this. Everytime, when such “attack” occurs, you can easily see that gold price pretty much drops vertically in Kitco’s chart. And that just pretty much never happens in any other markets from my own experience. The vertical fall is always the signiture. Despite that in the US market, gold may sometimes go up close to vertically, it happens with much less frequency.

The second thing that I’ve noticed throughout the past 4 years is that when a BIG drop in gold price occurs, it is usually coordinated or preceeded by a bigger than usual drop in the UK London market first. London market is another market that tend to have a bigger drop, except that the drop is not as vertical as in the US. Well, you know, UK is the best pal of United States, and it’s the only country who sold tons of gold when gold was trading at $250. Great cooperation with US indeed!

So before last Friday, what I saw was gold price was making V-shaped precipitious price drop (something like above that I recorded on Dec 4), with the price sometimes fully recovered, but usually impaired somewhat afterwards. The precipitious drop happened throughout the past two weeks (roughly some 8 days out of 10 trading days). I haven’t seen such “attack” happening so frequently in any two week period. Usually if it happens once a week at all, it’s A LOT already. Well, and then came the Friday, with double or triple attacks (you can almost count how many attacks there were in the chart below).

Well, anyway. I’m readying myself for two things to happen. One is that gold price falls below $450, and then I will go to bank and take out all the equity in my home and buy all physical gold & silver that I can. Or gold price goes to $850 and beyond, and I will just keep sitting on my current stake of precious metals.

Some of the things that gold bugs say are really down right scary. Things such as USA has its gold vault emptying at Fort Knox, and has been slowly sold out through gold loans (& this link too), will make the newspaper headline if it is ever found out to be true. I do know one thing. If/When the panic day of $US comes, it will be far better to have physical gold than GLD or any form of paper gold, or even gold stocks. If such day comes, maybe outright confiscation of physical gold behind paper gold (yeah, they will let you settle in fast depreciating cash) will occur. And then you won’t find physical gold/silver for sale, or maybe they will simply trade in the black market. I hope such days will never come, but just in case, I will pick up equivalent amount of physical precious metals to be able to pay 6 months of expenses, and possibly make my swap of precious metal stocks into physical at a later stage hopefully in this long term PM bull market.

One of the MAJOR reason that I was able to get 1stMillionAt33 was that there are just TOO MUCH paper money around. Look around! A billion here, a billion there. And the debts are counted in trillions. And the number of millionaire household in the USA has been steadily increasing at a rapid pace. In the book “The Millionaire Next Door”, I later found out that the study was actually done in 1996, and at that time, the median salary was some $110K, while the median networth of all the millionaires was about $1.6M. The author later wrote another book “The Millionaire Mind”, and did another study in 2001, and then the median salay became $410K, while the median networth jumped to 4 million plus. Roughly 4X increase in the span of 5 years. Either the author’s study is somewhat statistically faulty, or that the very rich people are getting much further ahead than the rest of us, or both.

So my basic advice to all of you. Grab a piece of everything in life to diversify your assets first, according to your expenses. Buy a home, buy an auto, buy the corresponding stock/company that you spend money on, or at least allocate your assets proportionally to the amount/type of expenses that you incur. Then, after that, you should grab things that are RARE that others don’t have because rare things/talents that are in short supply always are more valuable. Well, you know what’s rare, and what’s not rare, right? Definitely not more PAPER MONEY which can be printed at will at the Fed’s whim.

On Dec. 4, I highlighted the fact that the HUI broke above the down trend line that characterized the correction that started in May. It retreated below this important trend line last week (chart 1). Normally this would be a cause for alarm, although one has to realize this is de reguire for the HUI emerging from a long correction as the second and third charts below demonstrate.

The relevant question is again whether we have entered wave 3 of III. Martin Goldberg at Financial Sense continues to do a great job laying out the overall picture. From a pattern recognition point of view, the bearish argument harkens back to chart 3 where the correction that stared in late May 2002 found an intermediate bottom in October but didn’t entirely finish till March 2003. However, I’m optimistic based on the significant amount of time we have already spent under the 200 dma and the catharsis it normally engenders. I remain hopeful that the impending “golden cross”, where the 50 dma overtakes the 200 dma, will provide the necessary fuel for the next leg up.

So it goes without saying that the trend line and moving averages in chart 1 bears close watching. The good news is that we don’t have long to wait for a resolution.

To all,

From now on, there won’t be any posts during weekend. Due to the demand on my time for blogging, I have been thinking how I can handle this with my job & my family. The site audience is not really growing much. But I don’t want to close down the site outright either. Inevitably I think I will cut down the number of posts that I’m doing.

Starting now, there won’t be posts during weekend (except My Digg of the Week, whenever I find time to do that). I am also thinking of doing some survey on things people like to read more, to improve the site a bit. I would like your feedbacks on whether you like more content on general stock market, economics, real estate, precious metals, personal finance, or misc. And also whether you prefer interesting news reporting from what I’ve read (news), my personal opinions (commentary), or even more basics on finance/investing (fundamentals). You can send your feedback by email to me, leaving a comment here, or wait for me to construct the survey later.

I wish I am a superman, but I can only sleep less hours for so long. I’m not like the energizer bunny which keeps going and going….

By the way, during weekends, I do advise ALL readers to take a outing, do some (Xmas) shopping, or get together with friends & family. Internet is supposed to change our lives, but we are not computers, nor an extension of computers. Take a break away from everything, especially screens (TV or computer). Relax and have a good time.

Frugal

It cost me just $3.88 for 1GB Flash Drive.

Before mail-in rebate from Kingston, it’s $30 before tax. After mail-in rebate, I would only pay sales tax. This is with $20 Google Checkout bonus (for order >=$50). Since my previous rebate with Kingston has been approved, I assume that their mail-in rebate is pretty solid. So I will be just paying $3.88 for 1GB Flash Drive.

Here is the link:
http://www.buy.com/prod/Kingston_1GB_Data_Traveler_USB_2_0_Flash_Drive/q/loc/101/202743517.html

Be careful with the mail-in rebate receipt that you need to provide. The receipt MUST be printed from Buy.com website. Here is the only way that you should follow in order to print the receipt (or else you won’t get your $30 rebate):

1. After you use the Google Checkout, Google will send you an email. Ignore that email. Wait for a little while for Buy.com email notifying your order. It will be mailed from support, and the subject says Buy.com – Thanks for your Google Checkout order!.
2. Click on the first link in the email. It should be https://secure.buy.com/corp/support/guestordersearch.asp?who=google.
3. Fill in the all the info on that page. The order number is at the bottom of the same email from Buy.com. Then click on Find Order button.
4. You will be directed to the page where it shows the order. Scroll to the right and bottom. Click on “View Receipt” button.
5. Viola. Now you will get to the receipt page. Print that page. As far as I know, NOTHING else you provide will be recognized as a valid receipt. So it’s extremely important to get this sale receipt correct.

And remember to take advantage of Google checkout at all kinds of merchants. You can buy Books, Music CD, electronics and get $10 off per order (>$30), and $20 off per order (>$50) only at a few sites. Here is the list of all the merchants that participate in Google Checkout.

Happy Holiday Shopping!

Before the end of year, I’m contemplating what stocks to sell for capital losses to offset my capital gain this year. Here are some of the evaluation & steps that I suggest to take:

1. The maximum loss that one can deduct per year is $3000 (married filing jointly) or $1500 (filing separately). By the way, The US government should really index this number by inflation. It has been this low for so many years.
2. You should try to sell the minimum number of positions, without impacting your overall investing portfolio/direction/philosophy.
3. Don’t fall into wash sale trap, selling the same stock, and buying back within a month.
4. In order to avoid wash sale trap, you can use this opportunity to swap with other technically stronger stocks in the similar sectors. Or you can use sector ETF instead of individual stocks.

Another tax tip that most people don’t pay attention to is the tax rate differences between long term/short term capital gain. Because long term capital gain is taxed at a lower rate, it also means that long term capital loss will offset less tax than short term capital loss (whenever you have some long term capital gain to be offset). Your long term capital loss will be equivalent to short term loss when you don’t have any long term gain, but only losses. In that case, all losses will be deducting against your highest tax bracket income.

Therefore, for tax purpose, you should try to take short term capital loss, while retaining long term capital gain. In principle, the two best scenarios for taxes are to show either a short and/or long term loss without any long term gain, or a long term gain (+ any short term gain but not loss). For example, if you have two stocks A & B. In stock A, you have made $3000, while in stock B, you have lost $3000. If you let them offset each other in the same year, you get $0. If you somehow make the gain to become a long term gain, and take the gain in a different tax year (1/1 and 12/31), you will actually gain some $300 from tax. How so? Take $3000 loss in one year, assuming that you don’t have any long term gain to be offset, then $3000 short or long term loss will be deducting against your highest tax bracket income. Then taking the $3000 long term gain in another year will be taxed at 20%. Assuming your tax bracket is at 28% to 33%, you can gain $240 to $390 in tax difference (after-tax money). A general tax strategy can be that you alternate between showing losses and long term (+short term) capital gain. But obviously, $3000 tax loss is too small of a room to play out such strategy for most people.

In summary, don’t “waste” your long term capital gain by shrinking it with losses. Move the losses to another year. The only exception to this is when you are hitting AMT or alternative minimum tax. But with Congress expanding the AMT deduction, most likely you won’t hit AMT unless your capital gain is above roughly $30000. In that case, you can use my tax calculator to exactly figure out whether you will hit AMT or not.

Update 12/14, 10:30 pm
I got 6 more takers who will each receive one copy. The book give away is now closed. Thanks everyone and happy holidays!
Idris, Brent, MarryAnn, and Wing, I still need your mailing addresses.

Original post here

Thanks to all those showed an interest! At least I know now that some people are interested in the more technical posts I write. 15 copies of Elliott Wave Principle were sent today to: Abbas, SD_Stormrider, fitzsimm, Jason, Vaibhav, Andrew, Sheriff, LuctorEtEmergo, Caleb, Merez, Novice, terrence, Sanjay’s friend, Sky and Bishop. Those on the west coast can expect them in about a week; those elsewhere can expect it sooner.

There are still 5 copies left. Remember that you have to leave a comment to the original post and email me your mailing address to claim your copy.

VIX Background

The Volatility Index (VIX) was created by the Chicago Board Options Exchange (CBOE) in 1993; according to the CBOE, the ‘VIX measures market expectation of near term volatility conveyed by index option prices of the S&P 500.

In 2004 VIX futures were made available for trading providing investors with a unique opportunity to speculate on volatility. In general a rising VIX index is correlated with a declining stock-market while a declining VIX index is correlated with a rising stock-market.

(In the chart above, the missing data is a result of the VIX not meeting CFTC’s reporting requirements)

Recent Activity

As the VIX made new lows in November, commercials were big buyers (green rectangle) while large & small traders were sellers in the marketplace; meanwhile the stock-market was at new yearly highs. In other words, investors were becoming very complacent as commercials were buyers of volatility at these low levels. Soon after, volatility returned into the market place as the VIX broke out and went on to rally around 2.5%. As the VIX broke out, the Dow Jones declined around 200 points in two days.

Over the last two weeks net-commercial position decreased by 1,044 contracts but remains elevated at a total net-long position of 2,895 contracts. Watch for this week’s COT report for more clues on future direction for the VIX and consequently the stock-market.

Broad Markets

Russell 2000 [ http://www.buythebottom.com/rut.html ]
Net-commercial position decreased by 828 contracts. This is starting to look like a repeat of the commercial setup before May’s meltdown. Simply put commercials are sellers and large traders are buyers. As soon as the yellow line (net-commercials) crosses below the white dashed-line I would then start to look for a top in the stock-market. From the chart it would be logical to expect this setup in the early part of 2007.

S&P 500 [ http://www.buythebottom.com/spx.html ]
Net-commercial position decreased slightly by 440 contracts.

NASDAQ 100 [ http://www.buythebottom.com/ndx.html ]
Net-commercial position increased once more, this time by 1,252 contracts. What I find very interesting is that large traders are also big buyers over the last few weeks, which means that small-traders are responsible for all of the selling. This is a bullish setup in contrast to the other indexes.

Dow Jones [ http://www.buythebottom.com/indu.html ]
Net-commercial position continues to hover around the -22,000 level, increasing marginally this week by 117 contracts.

I would not expect a top in the stock-market just yet, especially when you look at the Nasdaq-100 chart, but the tide is slowly turning as best seen in the Russell 2000 chart.

Commodities

Crude Oil [ http://www.buythebottom.com/wtic.html ]
Net-commercial position increased by 4,343 contracts. I should note that commercials were buyers as oil rallied from $59 to $63. Meanwhile large traders were also buyers in the market, which leaves the small-traders as the lone sellers. Overall crude is setup for a rally, so keep watch for reversals and breakout opportunities.

Gold [ http://www.buythebottom.com/gold.html ]
Net-commercial position decreased by 2,444 contracts. From the commercial perspective I do not see a meaningful rally before we see a correction/consolidation.

Currencies

US Dollar [ http://www.buythebottom.com/usd.html ]
Net-commercial position decreased by 3,292 contracts. This is a critical point for the US dollar index, if commercials continue selling after the recent breakdown; this will be a big negative for this market. Unless that happens, look for higher prices as the dollar is setup for a rally.

I just read this story from LaTimes.com. Some guy had an equity of some $275K in his home, and he spent through it all. Here are some interesting excerpts from that link:

In the first eight months of 2006, even as the real estate market began to weaken amid fears of a downturn, the appeal increased again. Nearly 1 in 3 California loan applicants are now choosing them. The state boasts about 580,000 active pay option mortgages, about half the U.S. total.

Hertzberg’s home equity paid off his credit cards, financed trips around the world that allowed him to indulge his passion for photography, bought a $32,000 Toyota Avalon and enabled some lousy investments. He bought dot-com stocks and lost money. To recoup those losses, he bought commodities — and lost money faster.

But the day of reckoning is arriving early. By paying the minimum, Hertzberg has increased the size of his loan in a little over a year from $320,000 to $332,616. His lender, Calabasas-based Countrywide Financial Corp., recently sent him a letter warning that when his loan hits 115% of its original size he’ll run out of credit with the company.

The article said that his “life line” will run out in two years. But my calculation shows that it should be another four years (about 3% every year). Maybe I’m not using the correct current interest rate. In any case, such loans get recast every five years. So looks like he delayed his time bomb to 2010, assuming that he can get through annual 7.5% increase in the minimum payment year after year.

If you think his case through, don’t you wonder where the funny money comes and goes? It’s a house in 1995, and it’s the same house, but older in 2006. Just the valuation of the house has changed, but no economic productivity has increased. The flood of cheap money is coming from Asian savers and central banks, while Americans spent thru it. When Asian savers retire and start to withdraw money from the system, where will the “money” which is already spent come from?

When the wealth of a society is created primarily based upon a higher valuation of the assets, the wealth can go away as easily as it comes (when the valuation changes).

I’m guessing that at the end, the creditors/savers cannot get their saved (paper) money back, since the debtors/spenders would either have no money to pay back, or print more worthless ever-depreciating paper money for the savers.

As far as the real estate market goes, I’m still in the camp of slowly unwinding from the height, since the lending standards have not tightened much (this guy Hertzberg was able to refinance last fall). The housing market may rise up again if

1. wage income inflation catches up with the past housing inflation, or
2. long term interest rate falls even further, hard to imagine, but that’s the current forecast by the bond king Bill Gross (down to 3%).

I’m guessing that scenario #1 is more likely, if $US undergoes an orderly decline. But the outsourcing trends will probably cap the wage increases.

I don’t believe that scenario #2 will happen. I believe that along with the turn of housing market, the bond market has also turned. The sentiments among foreign central banks have turned, and diversification out of $US has been the key messages.